The question to ask yourself when the value of your 401(k) account is falling
With the Dow, S&P 500 and Nasdaq indexes in the red right now, looking at your retirement portfolio may have your heart racing.
Panicking and making any sudden changes to your portfolio won’t help your retirement savings – in many cases, doing so would actually hurt your future prospects. It’s important to remember that while it looks like you’ve lost money during a market downturn, that actually isn’t the case unless you were to withdraw or make extreme shifts to your asset allocation. When you sell during a downturn, you’re making those losses official.
Ask yourself: How am I feeling right now? How would I feel if my account balance were to bounce back in just a day or two? What would I most likely feel if it were to stay this way for a while? Can I remain calm in the future during a downturn or do I need to change how much risk my portfolio actually has?
Portfolios might also be made with risk capacity in mind – that’s how much risk an account is capable of handling in order to meet goals – but that measurement isn’t always aligned with an individual’s risk tolerance, which is how much they can emotionally handle.Investors may be asked to fill out a risk tolerance questionnaire before having their portfolios set up, but they may not be fully aware of how much risk they can actually tolerate until the market makes serious movements.
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